Are you a Lien Claimant? An Owner or Contractor facing lien claims on your project?

November 6th, 2015

A recent Supreme Court of Canada decision provides a reminder that there are multiple avenues by which contractors, sub-contractors, and material suppliers may pursue and secure claims for work or materials supplied to a construction or renovation project.

An important take-away from this case for lien claimants, is to be aware that the builders’ lien legislation provides multiple avenues of pursuing claims for payment. While there is sometimes an overlap, they should each be pursued for maximum advantage. In BC, the Builders Lien Act (the “Act”) provides recourse for contractor or subcontractor claims that include:

A lien against the land;

A “lien against the holdback” (often referred to as a “Shimco lien”); and

A trust claim.

These statutory remedies under the Act are in addition to any remedies that may be sought at common law (eg. breach of contract, debt collection, realization on personal guarantee, etc.).

Many of the remedies in the Act require that a claimant take action quickly… but in some cases, a claim can still be made, despite a significant delay.

Owners and contractorsin possession of trust funds need to be aware of the many avenues by which lien claimants can pursue their claims, and of their corresponding obligations under the Act.

Care should be taken that a progress payment or the release of hold-back funds will not cause the payor to run afoul of the Act. The consequences of doing so could result in double payment, or, in cases of misappropriation of trust funds, financial penalties up to $10,000, and/or imprisonment for up to 2 years.

Be careful about relying on a lien bond payment into Court to secure the release of lien claims!

The remedies for lien claimants and the obligations of owners/contractors in possession of trust funds can be confusing and complex.

If you have questions about lien claims or obligations under the Builders Lien Act, or if you require assistance navigating a lien claim, please contact Stephanie Streat, at 604-937-1166.

If you are interested in some additional details about the new SCC case, please read on!

Navigating the way through a builders’ lien dispute may sometimes feel as though one is “not in Kansas anymore!” The issues can be confusing and complex, and unfortunately, there is no shiny yellow brick road to follow to the desired destination.

It has been quite some time since the Supreme Court of Canada last issued a decision related to builders’ liens, but on September 18, 2015 it did just that.

The case looked closely at the interaction between two statutory remedies provided by the Manitoba Builders’Liens Act: builders’liens, and statutory trusts.

While some of the wording in the Manitoba Act and the BC Builders Liens Act differ, there are important similarities in many respects, and there is therefore a possibility that the decision will affect how builders’ liens are adjudicated here as well.

Specifically, the Court addressed whether a contractor has satisfied its trust obligations to subcontractors under the Act, by depositing a lien bond with the Court in order to vacate builders’ liens filed against the land. While many issues in the “Land of Builders’ Liens” may remain murky, the Court provided a clear answer to this particular question, that a lien bond filed at Court, while valuable security to stand in place of land in a lien claim, will NOT also satisfy trust conditions imposed by the Manitoba Builders’ Liens Act.

Facts:

During the construction of a stadium at the University of Manitoba, a dispute arose between the general contractor, D. and its subcontractor for structural steel, S. causing S. to file a builders’ lien. In order to facilitate the removal of S.’s builders’ lien from title, D. filed a lien bond in the full amount of the lien claim, with the Manitoba Court of Queen’s Bench.

D. then sought a declaration that by securing the full amount of the lien claim by way of the lien bond in Court, it had satisfied the trust conditions under the Act (allowing it to pay out any funds received from the Owner to other trust claimants, and when satisfied, to other creditors.) S. disagreed, and claimed that despite the lien bond, it was entitled to payment of its past due invoices from D. (pursuant to the trust) upon payment to D. of the funds by the Owner.

The Court of Queen’s Bench agreed with D: payment of the lien bond into Court satisfied both the lien claim and the trust obligations under the BLA.

The Court of Appeal overturned this decision, and declared that there were two separate and distinct rights under the BLA that are available to subcontractors, and that the filing of the lien bond did not satisfy the trust conditions.

Decision:

The SCC found that the trust provisions and lien provisions provide two separate remedies, for different purposes, with the trust remedy being more far-reaching.

What that meant in this case, was that depositing a lien bond with the Court for security of the lien claim does NOT also relieve a party of its trust obligations. The Court stated that finding a trust claim is extinguished by filing a lien bond would undermine its purpose.

It also noted that there is a distinction between payment and security. A contractor (or conceivably, an Owner) can avoid double security by paying CASH into Court instead of depositing a lien bond. These funds, while being held as security, remain impressed with the trust (but are not an “improper use” under the Act). So long as the trust funds themselves are deposited into Court, the funds are secure and the trust has not been breached. The Court clarified that there will never be a requirement for a depositing party to pay twice. To the extent that the lien and trust claims are for the same work, services or materials, payment under the trust will eliminate the equivalent amount payable to satisfy a lien.

This decision raises some interesting questions in BC. While the BC Act lacks the some of the statutory language related to trusts and Owners as found in s.5 of the Manitoba Act, the BC Act exhibits a number of similar principles, including the following:

One of the main objectives of the Act is to “ensure that monies flowing between the parties within the construction pyramid are not diverted and used for purposes unrelated to the construction project”[i];

Monies paid into the hold-back account are held in trust and are charged with the payment of liens arising under the contractor from whom the holdback was retained (s.5(2)(b)); and

Money paid into Court by a contractor, subcontractor or Owner becomes or remains subject to the trust imposed by s.10 (s.13(5)).

In addition, in BC, while monies retained by the Owner (other than in the holdback account) are not usually impressed with the statutory trust, there have been cases where monies that are due and payable, but retained by or on behalf of an Owner, have been found to be subject to a non-statutory constructive trust.[ii]

It remains to be seen whether the BC Courts will find that the statutory differences between the Acts will be sufficient to distinguish them, or whether the Courts will take a more holistic approach, and determine that the principles therein are similar enough for this case to be determinative in BC as well.